The Role of the IMF in Well-Performing Low-Income Countries - Working Paper 83

February 21, 2006

This working paper discusses how the IMF can respond to the changing economic and political priorities in many low-income countries, particularly within the current lending environment. Today, the IMF faces challenges as the borrowers that faced financial crises in the 1970s and 1980s are achieving macroeconomic stability and no longer need IMF financing. In cases where IMF financing is no longer needed, especially in “mature post-stabilizer” countries, the author suggests that the IMF may still play several important roles, including providing technical advice and assistance, playing a signaling role on macroeconomic conditions for government officials, donors and the private sector, and acting as a domestic political cover for maintaining responsible macroeconomic policies. The author urges the IMF to maintain engagement with mature stabilizers, however in a less prominent way, through other various activities such as nonfunded formal programs with upper credit tranche conditionality, and engaging in surveillance and monitoring to allow countries to have greater government ownership of their economic policies. The author argues that the IMF’s goal should be to graduate into an intensive surveillance role in low-income countries.

In a related paper (A Stability and Growth Facility -Working Paper 77), Nancy Birdsall and Kemal Dervis propose an IMF Stability and Growth Facility to help high-debt, mostly middle-income countries maintain credibility in the markets through fiscal discipline, in part to reduce their debt burden, while also addressing longstanding social needs.

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